Seal Software’s $15m injection from DocuSign: The analysis

DocuSign’s $15m investment in Seal Software is an immediately obvious move that will help DocuSign continue to build out its intelligent agreement framework and will open doors and relationships to Seal during a stage of its growth where it continues to burn through cash.
The investment – which is all new, primary capital – is Seal’s first corporate investment. DocuSign, which in 2018 entered a global partnership with Seal, becomes an investor alongside California-based venture capital firm Toba Capital, which is the majority shareholder and has backed Seal for the past five years.
DocuSign – the outright market leader when it comes to eSignatures and a listed company – has long looked at ways to grow its revenue and has naturally identified opportunities in owning the entire contract lifecycle. Last year it acquired SpringCM for $220m in cash as part of its vision to deliver a modern cloud-based ‘systems of agreements’ – the collection of technologies and processes used for preparing, signing, acting on and managing agreements that for most companies needs to be modernised and automated.
DocuSign has broken down the agreement process into four steps: prepare; sign, act; and manage, in which users retrieve and report on agreements. It is in this latter stage that Seal is already plugged in and the investment will ensure that DocuSign now has skin in the game to ensure they become a more integrated part of that offering.
Founder and CEO Ulf Zetterberg (pictured) tells us: “It deepens our partnership. We have two solutions on their price list and with the investment they want to accelerate what we can do together. It’s classic growth investment and they are the market leader: they have over 470,000 customers so for us it’s good access to an ecosystem and most of these have started a digital transformation programme. For us it fits hand in glove.”
The plan is that being part of the corporate business process will give Seal an advantage over competitors that have to sell to law firms, which don’t part easily with their cash and now wrestle with their own business model. “Being a part of the business process inside an enterprise is key,” says Zetterberg. “It will be a divider.”
The investment comes at a time when, like most software companies, Seal has a history of operating losses and has required external funding each year. Its costs in 2017 grew by 93% and its net loss was $24.7m (up by 36% on 2016) due to the cost of servicing new customers and building out its platform.
While it has a high renewal rate of around 90%, according to Zetterberg, it continues to invest ahead of revenue. That could change as soon as next year, and Zetterberg says: “Our plan in the near future is to be cash positive.
“We work on a subscription model and the big renewal rate means we take those early numbers with us so 10 become 20 become 40 and you don’t incur expenses at that ratio.”
A significant portion of Seal’s sales team is currently dedicated to finding new customers and the partnership with DocuSign is likely to help most in shortening that cycle.
“One of the biggest benefits to us is being part of that ecosystem,” says Zetterberg. “They sell a systems of agreement in cloud and Seal is part of that, which gives us natural access to customers.”
The big question is who it precludes them working with. Seal partners with some of the largest businesses in the world including SAP Ariba, Accenture, the Big Four accountants and, as of this year, UnitedLex.
Zetterberg is keen to stress that the company will continue to work independently and partner where appropriate: “We are an organisation with 270 people and 100 plus customers, way above that, and we have our own life and will continue to do so. This allows us to have an alignment where it makes sense, but we control our own destiny. We partner with whoever makes sense: if customers see it as valuable, we’ll do that. The partnership with DocuSign will grow faster so will help us, but our own standalone business will continue growing.”
This is an approach that Seal will have to work hard to maintain, given the obvious symmetry with DocuSign, and where DocuSign competes with existing partners.
So, is the plan ultimately for DocuSign to acquire Seal Software? That would be our guess, and at 35% growth in revenue in its first year as a listed company, things are going well for DocuSign, with the systems of agreement at the heart of all its plans.
Of course, Zetterberg won’t be drawn on that, and fairly so: if you want a 101 on not making statements about publicly-listed companies, just look at Tesla.
Instead we conclude by talking about the market. Contract review is one of the few areas of AI making real progress in the legal sector and we are seeing serious investment flow in. But is the hype surrounding AI a double-edged sword for Seal?
“Things are settling down, but we pay the price for those who claim to be AI software and are not,” Zetterberg says. “There are a lot of disappointed customers out there. But once we engage the customer, we pride ourselves on doing a great job and let our work with customers speak for itself.”
It also helps that enterprise customers mean business. “Enterprise customers are mature and extremely busy and have been through hype cycles before. There have been other names for AI before. They look at it in a pragmatic way: can this product drive real value? Can I use it to serve my customers better? Can it help me to improve my margin?
“It’s not a testing exercise: they don’t buy licenses to test for fun but have a real purpose and mean business. That’s the difference.”
With the growth of legal operations heads and the realisation among corporates that there is real value in their data, aside from their wider transformation objectives, it is not surprising that the pipeline for Seal currently looks very good.